Online Gambling Site Settles California Investigation (Nasdaq: UBET), an online gambling site based in Los Angeles, has reportedly agreed to pay $1.3 million (US$) to California authorities to settle an investigation into the company’s online horse racing operation in the state.

According to published reports, the company will pay a $600,000 civil fine, donate $500,000 to charitable causes and reimburse Los Angeles County for over $200,000 in costs associated with the inquiry. also reportedly agreed to refrain from conducting business with any California resident, although it will be allowed to keep its operation in the state. In exchange, California will not pursue criminal charges against the company or its officers.

The Los Angeles District Attorney’s office launched an investigation last October. The company, which claims to have a subscriber base of 11,700, third quarter revenue of $1.1 million, and a net loss for the quarter of $7.2 million, said at the time that it would cooperate with authorities.

Not a Sure Bet

The settlement will do little to clear up the haze that hovers over the Internet gambling issue. Some states have passed piecemeal legislation banning online gambling, and the U.S. Senate recently passed a bill that would outlaw it — albeit with a number of loopholes.

Senator Dianne Feinstein (D-California), for instance, attached an amendment to the bill that would permit Internet gambling — such as horse racing — that is conducted on a closed loop. Still, the bill penalizes those who violate the prohibition with $20,000 fines and up to four years in prison, and also allows judges to issue permanent injunctions.

The House of Representatives is expected to take up the issue when it returns from winter recess later this month. Some observers expect a different version to pass, which could be melded with the Senate bill and sent to President Clinton for approval.

Hot Button Issue

The stakes, of course, are very high. Industry analysts predict that the online gambling industry could generate over $1.5 billion in revenue in the next two years. There are already an estimated 700 online casinos and over 200 sports betting companies that have set up shop on the Web.

Like the hotly contested issue of Internet taxation, the debate cleaves a sharp line between opponents and proponents. Opponents say that online gambling could lead to a new and younger generation of gambling addicts who would have easy access to feed their habits.

Proponents say that online stock brokers already provide forums for betting on the Web and banning gambling outright would lead people to less regulated and illegal venues — much like the prohibition against alcohol did early last century.

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